Philip Morris is betting on e-cigarettes and new flavors as it feels the heat from Juul and KT&G
- Philip Morris is expanding its e-cigarette business and rolling out new flavors as it feels the heat from Juul and Korea Tobacco & Ginseng Corporation.
- The tobacco titan has "an eye" on Juul and plans to fend off the startup by winning customers first.
- It lost e-cigarette market share in South Korea in the second quarter as KT&G capitalized on South Korean smokers' unique tastes with novel flavors and crushable capsules.
- Watch Philip Morris trade live.
The maker of Marlboro cigarettes is expanding its e-cigarette business and rolling out new flavors as it feels the heat from rivals Juul and Korea Tobacco & Ginseng Corporation.It's "early days for Juul" and the e-cigarette startup's explosive growth is yet to burn Philip Morris, finance chief Martin King said on the company's latest earnings call. However, the tobacco giant has "an eye on it" and plans to fend off Juul by winning customers in the EU, Russia, and elsewhere first.Advertisement
"We're taking steps including with the e-cigarette platform for investment and rollout," King said, "to make sure that we're going to compete well with Juul."
King conceded Juul - which received a $12.8 billion investment from archrival Altria in December - will probably do well, but downplayed the threat. "There's room for more than one successful product in this category, and Juul will likely get some success," he said.Philip Morris has been hurt more by competition in South Korea, the only territory where its share of the e-cigarette market fell last quarter. Market leader KT&G has snagged customers with novel flavors such as bubble gum and mojito, as well as innovative flavor capsules that users can crush while smoking.
"Korea is a country that has an overall trend of all kinds of exotic flavors, and it's present in the tobacco area as well," King said on the call. "KT&G has done a very good job of capitalizing on this."Tighter regulations pose another challenge. The South Korean government has raised taxes on cigarettes, mandated negative imagery on cigarette packs, and banned the use of words such as "light" and "mild" on packaging in recent years. Those anti-smoking policies helped to lower the number of cigarettes sold in South Korea by about 13% between 2016 and 2018, to 63.4 billion, according to Euromonitor International, a market research provider. The upshot was a 5% slump in total cigarette sales to around $13.9 billion over the same period.Another raft of rules could shrink the local market even more, leaving Philip Morris to battle for cigarette butts. Advertisement
"The government is expected to trigger further declines as there are further regulations awaiting review in the national assembly, such as plain packaging or a ban on flavored cigarettes," Euromonitor wrote in its latest Cigarettes in South Korea report. Tobacco companies have already been "banned from describing the flavor of cigarettes as this could attract the young generation."
The combined threats of regulation, new technology, and local competition have left Philip Morris' South Korean business "in need of some immediate action," King said on the call. The current plan is to expand its range of flavored e-cigarettes in the coming months.Advertisement
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